Galaxy ‘Concocted’ Story to Walk From $1.2B Merger, BitGo Says

Crypto custody unit BitGo says Galaxy Digital pulled out of its merger deal due to missed profits throughout the bear market

article-image

Blockworks exclusive art by axel rangel

share

key takeaways

  • Galaxy Digital and BitGo are locked in a legal battle over a scuttled merger deal initiated last year
  • Galaxy claims BitGo’s auditing standards were insufficient, which BitGo denies

Galaxy Digital’s decision to terminate its $1.2 billion merger with custody firm BitGo had nothing to do with financial statements and everything to do with missed profits following crypto’s decline earlier this year, BitGo is alleging.

In a Sept. 15 court filing made public on Monday, BitGo said Galaxy’s losses and an “unanticipated predicament” with the SEC in its quest to go public are what ultimately led to the demise of the deal. Any notion that BitGo had failed to file key documents to the financial regulator, in time, is false, it said.

As such, BitGo is seeking $100 million in damages from the Mike Novogratz-led crypto financial services company, which was first signed in early 2021. Galaxy, which is publicly-traded in Canada, agreed to acquire BitGo and then go public in the US, the filing reads.

Both parties signed the original merger agreement in May 2021, which underwent an initial amendment before the deal was scheduled to close on or before Dec. 31 of this year.

By August 2022, Galaxy told BitGo and Galaxy’s own stockholders it was terminating the merger agreement because BitGo had failed to deliver audited financial statements by the deadline specified in the merger agreement.

Filed in a Delaware Chancery Court, the document was kept under seal to provide ample time for Galaxy to contend or otherwise redact some of the allegations before the complaint was made public, BitGo’s lawyers said in a statement last week.

Galaxy later told Blockworks in an email it disagrees “completely” with BitGo’s allegations and was confident in its position to have the complaint dismissed.

Galaxy, which has seen its share price slide more than 70% this year, posted a second-quarter net loss of $555 million as well as a first-quarter loss of more than $110 million.

BitGo said Galaxy became “desperate” to escape its deal and “concocted” a story because it knew it couldn’t simply walk or otherwise face coughing up millions of dollars via a reverse termination fee.

BitGo claims Galaxy was late to submit SEC documents

Galaxy also faced regulatory woes when it realized it was “dangerously” behind schedule in conducting its corporate restructuring and registration with the SEC as it sought a public listing on the Nasdaq exchange in the US, BitGo alleges.

“BitGo had timely delivered all its audited financial statements under the merger agreement — financial statements with clean opinions audited by highly regarded independent accounting firms,” the filing reads.

Galaxy claims there were deficiencies in BitGo’s auditing standards, which used Generally Accepted Auditing Standards (GAAS) instead of standards from the Public Company Accounting Oversight Board (PCAOB). 

PC in the PCAOB acronym stands for “public company” and since BitGo is privately held it is not required to have its financial statements audited in accordance with it, BitGo said in its filing.

“Galaxy never notified BitGo of any purported deficiency of its auditing standards because there was none,” the crypto custody firm alleges. 

Galaxy knew an audit based on PCAOB standards rather than GAAS would be inconsequential on financial statements and reported financial position, BitGo said.

BitGo also said Galaxy, its auditors and the SEC had more than 11 months to come to a conclusion over the inconsistencies in auditing standards but failed to take action or make its dissatisfaction known.

Novogratz reaffirmed Galaxy’s plans for a Nasdaq listing last month, pending SEC approval.


Don’t miss the next big story – join our free daily newsletter.

Follow Sam Bankman-Fried’s trial with the latest news from the courtroom

Tags

Upcoming Events

MON - WED, MARCH 18 - 20, 2024

Blockworks’ Digital Asset Summit (DAS) will take place March 18-20, 2024 at The Hilton London Metropole. Why London? Momentum.  London has become one of the world’s hottest crypto hubs.  Innovation is thriving, new institutional investors are flocking in, and regulators like […]

recent research

l1 cover.png

Research

This analysis focuses on financial metrics for general-purpose L1 blockchains. In many ways, L1s should be viewed as an entirely new asset class more comparable to digital economies than traditional businesses. L1s are the core infrastructure enabling the creation of new-age businesses like onchain protocols.

article-image

Ripple previously announced its intent to acquire Fortress on Sept. 8

article-image

Four patent applications were published since Sept. 21, suggesting that PayPal is taking a close look at distributed ledger tech

article-image

If the market wasn’t quite so boring, perhaps BitBoy’s flameout would have been a little less fiery

article-image

Developers have a new testnet running, but devnet testing the Dencun upgrade is running behind schedule

article-image

A handful of Democrats are joining the anti-Gensler and pro-crypto movement

article-image

The Bank of International Settlements conducted the project in partnership with central banks from France, Singapore and Switzerland